FDIC Law, Regulations, Related Acts

4000 - Advisory Opinions

FDIC Insurance of Public Unit Deposits

FDIC-85-7

April 11, 1985

Roger A. Hood, Assistant General Counsel

Our records show that the FDIC Legal Division has previously
responded to an inquiry from you concerning deposit insurance coverage
for public unit accounts. By an opinion letter of March 19, 1985, the
Legal Division rescinded a 1979 opinion that had concluded that
multiple custodians of public funds appointed pursuant to a Colorado
statute were "official custodians" for FDIC insurance purposes
and entitled to separate deposit insurance. We inform you directly of
the new interpretation because of your earlier inquiry and because the
new interpretation may conflict with the advice previously furnished to
you and have significance for your handling of deposits of public
funds.

More particularly, the legal Division's opinion Letter of March 19,
1985 concluded that multiple custodians of public funds appointed
pursuant to section 24-36-109 of the Colorado Revised Statutes are not
"official custodians" for FDIC insurance purposes (12 C.F.R.
§ 330.8) and are not entitled to separate deposit insurance. The 1985
opinion found that the multiple custodians exercised no control over
public funds and were not, therefore, custodians in fact, and appeared
to have been appointed solely in an effort to increase deposit
insurance coverage.

The rationale of the 1985 opinion implies that, to qualify as an
"official custodian" under 12 C.F.R. § 330.8, a designee must
have plenary authority (which includes control) over funds allocated to
the public unit which the custodian is appointed to serve. Control of
public funds includes possession, as well as the authority to establish
accounts for such funds in insured banks and to make deposits,
withdrawals and disbursements. The deposit insurance available to a
public unit cannot be increased merely by fragmentizing such authority
over that unit's funds among several putative official custodians.
Similarly, if the exercise of authority or control over the funds of a
public unit requires action by or the consent of two or more putative
official custodians, then they will be treated as one "official
custodian" with respect to such funds for the purposes of 12 C.F.R.
§ 330.8.

In order to accommodate those who may have deposited public funds in
FDIC-insured banks in reliance on the 1979 opinion, the FDIC Board of
Directors ordered that the new ruling be phased-in. Specifically, the
Board ordered that any deposit in an FDIC-insured bank that was made by
a public unit through multiple custodians appointed under the Colorado
statute in question, or appointed under any similar state or local law,
and which deposit was made, renewed, or extended on or before April 5,
1985 (March 19, 1985 for deposits made by the Colorado State
Treasurer), will be insured under the 1979 interpretation, and those
made, renewed, or extended after that date will be insured under the
1985 interpretation. A copy of the April 4, 1985 press release
explaining the Board's action is
enclosed.